Could a stop-gap stay with family ruin my mortgage application?

I am planning to buy my first home this year, have a deposit saved and have just started viewing properties.

I currently rent, but will be moving out soon as the landlord will only renew the lease on a fixed one-year term which I don’t want to commit to given my plans to buy.

A family member has kindly offered to let me stay with her rent-free for a few months until I buy. If I take her up on it, I will be able to save a bit more, but the move will also require a long and expensive train commute to work.

That said, I’d be very grateful not to have to worry about timing my purchase with the end of a rental lease.

On the ladder: Our reader currently rents and is keen to buy their first home – but will be living with family in the meantime and is worried this could affect their credit score

While my total spending won’t change much, what I am spending money on will be drastically different and I’m wondering if this would affect a mortgage application.

I have been paying rent for the last 15 years, and suddenly would not be paying any – though I would obviously be contributing to bills and food. 

On the other hand, my transport expenses would temporarily quadruple – but this would vastly reduce again once I moved into my new home.

Is this something a mortgage lender would be bothered about? I also won’t be named on any of the household bills, so could this cause problems with credit checks and proof of address? 

Should I get a mortgage in principle before or after I move out of my rented home?

Ed Magnus of This is Money replies: Mortgage applications can be daunting, particularly when you’re new to the experience and may not be sure what boxes you need to tick to be successful. 

After having done all the hard work by saving for a deposit, being denied a mortgage for a ‘computer says no’ style algorithmic error caused by a temporary change of address or circumstance would be a kick in the teeth – to put it mildly.

The reality is that first-time buyers get rejected by mortgage lenders for all manner of reasons. 

Issues around credit history and not being on the electoral roll are two such reasons that could cause an application to be denied. 

A poor credit score or record raises alarm bells for lenders because they want to make sure you’re going to be a reliable borrower. 

When applying for a mortgage, the lender will typically want to see proof of identity and address. For example, a scanned passport and a utility bill.

They will also want to see your most recent bank statements, as well as your latest payslips if you are employed or your latest two or three years of tax returns if self-employed. 

Lenders will want to see that the information shown on these documents lines up. If the addresses are different, that could cause an issue – though living with family is not uncommon among first-time buyers and is a situation that can be fairly easily explained. 

To help further advise our reader, we spoke to Karen Noye, a mortgage expert at Quilter and Nicholas Mendes, mortgage technical manager at broker, John Charcol.

Will their travel expenses be a problem?

Karen Noye says lenders will take future changes in circumstances into consideration

Nicholas Mendes replies: No, lenders take into consideration your future circumstances. 

As your travel will be cheaper once you move into the property, the lender will accept reduced travel costs as part of their affordability assessment.

Karen Noye replies: Lenders do take spending into consideration, and some will use ONS data to look at averages while others ask for specified amounts such as your council tax costs, insurance and travel costs.

Where your travel costs will reduce on moving as a result of being closer to work, the lender will take this into consideration when assessing affordability, and they tend to look at the purchase address in relation to your work address to check that it is feasible.

Additionally, applications will require the last three years of your address history, so you will have the opportunity to provide full notes within your application regarding your circumstances, why your travel costs have increased, and that the move will mean you are closer to work again and will therefore reduce the costs in the future.

Lenders are generally happy with this level of explanation but may sometimes require additional information or proof.

What about not being named on any household bills?

Nicholas Mendes warns that not updating address records could impact your credit history and hinder your application

Nicholas Mendes replies: When you move into a new address, even temporarily, it’s important to make sure your records are up to date with your bank, electoral register, and driving license. 

Not updating key records could impact your credit history and hinder your application. 

Lenders typically require your last three years of address history as part of their assessment. 

Karen Noye adds: Once you have moved into your new address, even if temporary, it is important to ensure you update your address as soon as possible with your employer and bank, as well as on any finance agreements and the electoral roll, among others.

In terms of credit checks, if your address is updated straight away, you will be able to use a bank statement for proof of address.

Not all household bills show on credit files as it depends on the provider, and there are other ways to help build or maintain your credit score, such as correctly-managed credit cards.

When should they get their agreement in principle?

Karen Noye replies: If you get an agreement in principle now and then move out, you will need to update the lender and the lender will then re-run the credit check due to it being a material change in your circumstances.

I would therefore suggest waiting until you have moved, unless you are looking to make an offer on a property in the immediate future.

If you do apply for a mortgage in principle before moving out, then it is important to update the broker or lender once you do.

Check: A poor credit score or record raises alarm bells for lenders because they want to make sure you’re going to be a reliable borrower

Nicholas Mendes adds: I would recommend any prospective buyer to get an agreement in principle straight away. 

Knowing what they can borrow can help ensure they are looking at the right properties that fit their budget, but also alert them to any issues that are limiting their ability to secure the property they want. 

How important is their credit score?

Nicholas Mendes replies: Your credit score and history are incredibly important factors when applying for a mortgage, since it indicates to lenders how likely you are to pay back money loaned to you. 

Mortgage lenders typically look at reports from either of the three major credit reporting bureaus: Equifax, Experian and TransUnion. 

How can they improve it?

Nicholas Mendes adds: If your credit score isn’t quite up to scratch, you should aim to improve it over time.

You can do this by registering on the electoral roll, making payments on time, reducing your existing debt and checking your credit report for errors and disputing any inaccuracies.